For energy-producing states, shifts in domestic fuel use could be the biggest impact of the Clean Power Plan

Source: Nathanael Massey, E&E reporter • Posted: Monday, July 28, 2014

States that pay the highest abatement costs under U.S. EPA’s new power plant carbon rule may actually emerge as economic winners once upstream impacts are accounted for, according to a new joint analysis by the Rhodium Group (RHG) and the Center for Strategic and International Studies (CSIS).

In the month and a half since EPA first released a draft version of its Clean Power Plan (CPP), most analysts and pundits have focused on the costs of emissions abatement the plan would require — costs that, barring significant gains in energy efficiency, would be passed on to ratepayers in the form of higher electricity prices.

But the United States isn’t just an energy consumer. Almost 85 percent of its power is produced domestically, according to the Energy Information Administration, and any policy that alters the way power is consumed will have repercussions for power producers, as well.

The question for producers is which resources win and which lose under the CPP.

Among the Clean Power Plan’s proposed strategies, or “building blocks,” states can lower their emissions by fuel-switching from coal to lower-carbon natural gas. In scenarios modeled by CSIS and RHG, the CPP could push gas consumption up 40 percent between 2020 and 2030, assuming states pursue their most cost-effective pathways to EPA’s emission rate targets.

“Because of the shale boom, the vast majority of that increase in demand is met through increase in U.S. shale gas production” with only a small change in import and export levels, said Trevor Houser, a RHG analyst and co-author of the study.

That boom in demand for gas would largely offset coal consumption, which the study found to drop by 47 percent in the same scenario.

A hard fall for coal, a windfall for gas

The study’s authors did not look at the possibility of increased coal exports or the possibility of large-scale exports of liquefied natural gas. Coal companies operating in Montana and Wyoming are pushing hard for a number of large-scale export terminals in Oregon and Washington, although those proposals have hit stiff resistance (ClimateWire, Oct. 1, 2012).

And an aggressive move toward energy efficiency would likely lower the need for both fossil fuels, they noted, leading to a smaller — though still significant — shift from coal to gas.

But their numbers still indicate that the CPP is likely to have a profound impact on power-producing industries in the United States. For states that rely heavily on their energy sectors, these upstream impacts will likely prove a more important consideration than marginal increases in electricity rates, Houser said.

As an example, he pointed to the west south-central region of the United States, a census zone including Texas, Oklahoma, Louisiana and Arkansas. In terms of per-capita abatement costs — the cost, per resident, of lowering emissions rates to EPA’s suggested levels — this part of the country would pay nearly twice the U.S. average.

But “the west south-central region also sees the biggest benefits in terms of natural gas production,” with up to $18 billion in increased revenue, Houser said. That boost would be only slightly offset by a decline in coal consumption, by about $1 billion, he said.

By contrast, Wyoming, whose Powder River Basin still produces about half of the country’s domestically burned coal, has a relatively small abatement commitment under the CPP but stands to lose billions of dollars in revenue if national coal consumption declines.

This may explain, in part, why Wyoming is currently the only state to have passed legislation in anticipation of the CPP, ruling EPA’s permitting authority unconstitutional (ClimateWire, June 9).

But for other states, like Oklahoma and Texas, the potential windfall of a growing gas industry will be an important consideration as they square off to fight, accommodate or modify the plan in the months ahead.

“If you’re in the west south-central U.S., your equity in this discussion is going to be the energy you can produce,” Houser said. “That’s going to have the biggest impact on your region.”